Purchasers of IFA businesses are taking advantage of a "once in a lifetime land grab" as the impact of increased regulation pushes traditional advisers out the industry, according to a consultancy firm.
Harrison Spence managing partner Brian Spence, a former IFA and fund manager, works with advisers to help them maximise the value of their businesses, and is often involved in pre-sale arrangements.
He cautions advisers to do extensive due diligence on potential buyers - and warns some IFAs are being taken advantage of by purchasers, including with promises of a share in the profits if the purchaser floats.
"Purchasers out there are going for a once in a lifetime land grab as the Retail Distribution Review (RDR) pushes traditional lifestyle IFAs out the door," Spence said.
"Some advisers are being taken advantage of. The purchasers are more commercial than most IFAs".
Bellpenny is one example of a consolidator which by its own admission has hugely benefitted from the effects of the RDR on firms as advisers seek an exit to avoid the increased burden of the rule change.
The company said in January - as it announced the purchase of its fifteenth IFA business - that the RDR was "very much a catalyst for the formation of Bellpenny", and that every one of its deals to date can be attributed, to a greater of lesser degree, to the after effects of the RDR.
However Spence said he is seeing some IFA purchasers encountering problems as they try to maximise the profit in the businesses they buy.
"Some purchasers are allocating 200 clients to one young adviser who isn't up to giving the clients the service they are used to from the original IFA," he said.
"Then you have clients leave to go to another adviser, and that's when you start getting complaints about the original advice.
"Purchasers are saying their attrition rate is very low but I expect that to go up to around 50% unless they really give attention to their clients," he said.
Purchasers will "really have to consider their model", according to Spence, who likened the present situation to that of insurance companies in the 1980's who bought up estate agents, and then were forced to dump them when the profits failed to materialise.
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